Q So the original —
5 A — and I’ve been to her office.
6 Q — the original was located in your office?
7 A Yes.
8 Q Where’s your office located?
9 A Simi Valley, California.
10 Q And has the original of this allonge remained in your
11 office until you appeared here today?
12 A We had sent it on to — to our attorneys. They were in
13 possession of it.
14 Q And again, who do you believe is the holder of the note
15 and mortgage here?
16 A Well, Countrywide — Bank of America — whatever we’re
17 calling ourselves these days, we are Bank of America now — we
18 originated this loan. It was originated via a broker and it’s
19 really always been a Countrywide loan. The investor is Bank
20 of New York. We are the servicer of the loan.
21 Q Now, when you say it’s really a Countrywide loan, wasn’t
22 it sold? Wasn’t this loan securitized and ultimately sold —
23 sold to this trust?
24 A Right, it would have been securitized and sold. They are
25 the investors of the loan. But we are the ones that would
<SNIP>
9 A Who is in possession of the note? We have the note in our
10 origination file.
11 Q So — so Bank of New York as trustee does not hold the
12 note, is that correct, or is not in possession of the note?
13 A The original note to my knowledge is in the origination
14 file.
15 Q Where is the — do you have it here today?
16 A No, I don’t have it with me here today.
17 Q So you don’t have the note?
18 A It’s in our office.
19 Q So it’s in your office, it’s not with this trust that owns
20 the — that’s supposedly holds the — or is the owner of this
21 note, is that correct?
22 A That’s correct. 23 Q And your testimony is that this allonge was never
24 submitted to — it was never in the possession of Bank of New
25 York as trustee for the certificate holder, is that correct?
<SNIP>
9 Q And this allonge, it’s a stand-alone document, correct?
10 It’s not attached to anything, is that correct?
11 A I’m not sure I’m understanding your question.
12 Q Was there anything — when you brought the original that’s
13 in front of you, did you remove it? Was it stapled to
14 something else?
15 A No, it wouldn’t have necessarily been stapled to something
16 else. There would have probably been other documents showing
17 the — you know, we would have shown her the note. We would
18 have reviewed all of that before.
THE COURT: All right. I have the supplemental and
12 second supplemental submissions of Countrywide and the reply.
13 Mr. Kaplan, I look to you first. I am, frankly, appalled at
14 the confusion and lack of credibility of Countrywide’s
15 response to the issue of the note — the possession of the
16 note.
17 We started out with Ms. DeMartini’s testimony that
18 the note never leaves the servicer. She says that she saw a
19 Federal Express receipt whereby the actual note, the physical,
20 original note was transferred to the Foreclosure Department
21 internally in the same building, but that the note had not yet
22 been located. That’s where we stood at that point.
23 Then we had a submission, the supplemental
24 submission saying the original note has been found and can be
25 available for inspection. It doesn’t say where it was found,
1 who had possession or the like, but it was found and is
2 available for inspection.
3 And then without any explanation, there is a lost
4 note affidavit presented dated February of 2007 indicating
5 that the note cannot be found. No explanation provided. What
6 do I do with that, Mr. Kaplan?
<SNIP>
THE COURT: It’s amazing how sloppy this
2 presentation was, and I’m very disappointed about that.
3 Anyway — all right. Well, thank you, Mr. Kaplan. Do you
4 want to present testimony? Does it matter, you know, because
5 there is no testimony regarding possession by Bank of New York
6 as Trustee, correct?
7 MR. KAPLAN: That’s correct, Your Honor. I’m not
8 disputing that. That’s what Ms. DeMartini testified to, that
9 the note — she had no record of this note leaving and going
10 across country, across wherever, to Bank of New York.
11 THE COURT: And you do understand as well that the
12 Pooling and Servicing Agreement requires that transfer, that
13 physical transfer of the note in accordance with — and
14 endorsement — in accordance with UCC requirements?
15 MR. KAPLAN: I understand that, Your Honor. I’ll
16 simply say for the sake of edification, but this is — and I
17 was told it was all e-filed — this is apparently the index to
18 this Master Servicing Agreement showing all the loans and it
19 does reference the Kemp loan. It’s a double-side document,
20 includes all the loans.
21 And I can say that, although Your Honor is right and
22 the UCC and the Master Servicing Agreement apparently requires
23 that, procedure seems to indicate that they don’t physically
24 move documents from place to place because of the fear of loss
25 and the trouble involved and the people handling them. They
basically execute the necessary documents and retain them as
2 long as servicing’s retained. The documents only leave when
3 servicing is released.
4 THE COURT: They take their chances.
5 MR. KAPLAN: I understand, Your Honor.
6 THE COURT: Understood. Thank you.
7 Counsel, the proof of claim was filed — let’s see
8 — it was filed by Countrywide Home Loans, Inc., servicer for
9 Bank of New York — now, that’s wrong. We understand that.
10 Can the — can these problems be corrected post-petition? In
11 other words, we know that claims can be transferred post12
petition.
13 What about if the note, the original note now that
14 has seemingly appeared, is now transferred to the Bank of New
15 York as Trustee and amended, it wouldn’t have to — well, it
16 would be amended to reflect that Countrywide Home Loans, Inc.,
17 is not the right party, but Countrywide Home Loans, Master
18 Servicing or servicing whatever that name is, as servicer for
19 Bank of New York, Trustee, is filing this proof of claim,
20 what’s wrong with that?
Last week the US Bankruptcy Court for the District of New Jersey issued an opinion in a case captioned Kemp v. Countrywide Home Loans, Inc. This case looks like the first piece of evidence in what might turn out to be the Securitization Fail or, in homage to Michael Lewis, The Big Fail.
Briefly, Countrywide as servicer filed a proof of claim for a mortgage in a bankruptcy case on behalf of Bank of New York as trustee for a securitization trust. The bankruptcy court denied the claim because there was no evidence that Bank of New York ever owned the mortgage. The mortgage note had never been negotiated or delivered to Bank of New York, despite the requirement to do so in the Pooling and Servicing Agreement (PSA) that governed the securitization of the loan. That meant that Bank of New York as trustee had no interest in the loan, so the proof of claim filed on its behalf was disallowed.
This opinion could turn out to be incredibly important. It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction: failure to properly transfer the mortgage meant that the mortgages were never actually securitized. The rest of this post explains the chain of title issue in mortgage securitizations and how Kemp fits into the issue.
Note and Mortgage Transfers in Securitizations
A residential mortgage securitization is a transaction that involves a series of transfers of two types of documents: mortgage notes (the IOUs made by mortgage borrowers) and mortgages (the security instrument that says the lender may foreclose on the house if the borrower defaults on the note). Ultimately, both the notes and mortgages need to be properly transferred to a trust that will pay for them by issuing securities (backed by the mortgages and notes, hence residential mortgage-backed securities or RMBS). If the notes and mortgages aren’t properly transferred to the trust, then the securities that the trust issues aren’t mortgage-backed and are worthless.
So the critical issue here is whether the notes and mortgages were properly transferred to the securitization trusts. To determine this, we need to figure out two things. First, what is the proper method for transferring the notes and mortgages, and second, whether that method was followed. For this post, I’m going to focus solely on the notes. There are issues with the mortgages too, but that gets much, more complicated and doesn’t directly connect with Kemp.
Mark my words …this is one you’re going to hear of over and over again. It’s beginning to appear … what we’ve been trying hard to break is cracking before our eyes and ears. This should raise concerns about the MERS System as well since the assignments clause states “together with the note(s) and documents therein described”.
Humpty Dumpty does indeed exist!
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY
In the Matter of John T. Kemp
John T. Kemp
v.
Countrywide Home Loans, Inc.
Case No. 08-18700-JHW
APPEARANCES:
Bruce H. Levitt, Esq.
Levitt & Slafkes, PC
76 South Orange Avenue, Suite 305
South Orange, New Jersey 07079
Counsel for the Debtor
Harold Kaplan, Esq.
Dori 1. Scovish, Esq.
Frenkel, Lambert, Weiss, Weisman & Gordon, LLP
80 Main Street, Suite 460
West Orange, New Jersey 07052
Counsel for the Defendant
EXCERPT:
The new allonge was signed by Sharon Mason,
Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk
Litigation Management Department. Linda DeMartini, a supervisor and
operational team leader for the Litigation Management Department for BAC
Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge
was prepared in anticipation of this litigation, and that it was signed several
weeks before the trial by Sharon Mason.
As to the location of the note, Ms. DeMartini testified that to her
knowledge, the original note never left the possession of Countrywide, and that
the original note appears to have been transferred to Countrywide’s foreclosure
unit, as evidenced by internal FedEx tracking numbers. She also confirmed
that the new allonge had not been attached or otherwise affIXed to the note.
She testified further that it was customary for Countrywide to maintain possession of
the original note and related loan documents.
In a supplemental submission dated September 9,2009, the defendant
asserted that “the Defendant/Secured Creditor located the original Note. The
original Note with allonge and Pooling and Servicing Agreement are available
for inspection.,,7 When the matter returned to the court on September 24,
2009, counsel for the defendant represented to the court that he had the
original note, with the new allonge now attached, in his possession. No
additional information was presented regarding the chain of possession of the
note from its origination until counsel acquired possession.
In Re: SHARON DIANE HILL, Debtor, ROBERTA A. DeANGELIS,
Acting United States Trustee for Region 3, Movant,
v.
COUNTRYWIDE HOME LOANS, INC., GOLDBECK,
McCAFFERTY AND McKEEVER, and ATTORNEY LESLIE
PUIDA, Respondents.
Case Number 01-22574 JAD, Chapter 13
UNITED STATES BANKRUPTCY COURT FOR THE WESTERN
DISTRICT OF PENNSYLVANIA
2010 Bankr. LEXIS 3313
October 5, 2010, Decided
COUNSEL: [*1] For United States Trustee: Patrick S. Layng, Esq.
for United States Trustee: Lisa D. Tingue, Esq.
For United States Trustee: Norma Hildenbrand, Esq.
For Countrywide Home Loans, Inc: Thomas A. Connop. Esq.
For Countrywide Home Loans, Inc.: Dorothy A. Davis, Esq.
For Goldbeck, McCafferty and McKeever/Atty Leslie Puida: Francis Manning, Esq.
JUDGES: Thomas P. Agresti, Chief Judge.
OPINION BY: Thomas P. Agresti
OPINION
Related to Doc. No. 465
MEMORANDUM OPINION AND ORDER
Excerpt:
DISCUSSION
(A) The Court’s Rule to Show Cause
The Rule is directed against Countrywide, GMM, and Puida and was very deliberately limited to
seven well-defined Items of potentially sanctionable conduct related to this whole matter, four
directed to Countrywide and three to GMM and Puida. The Court’s approach to resolving the
specified matters before it is to set forth each of the Items as stated in the Rule, followed by a
discussion of whether the evidence supports the imposition of any kind of sanction against the
respective party involved. The seven Items of inquiry identified by the Court in the Rule involve the
following, allegedly inappropriate instances of conduct:
(1) Countrywide [*43] failing to properly account for chapter 13 payments made by
the Debtor during the pendency of her case.
(2) Countrywide knowingly and willfully violating the discharge injunction granted
to the Debtor through numerous and sustained attempts to collect on questionable debt
which, by appropriate review of applicable records, was current as of the time of entry
of the discharge order.
(3) Countrywide intentionally, or with reckless disregard and/or indifference to the
applicable facts, misleading the debtor’s attorneys into believing change notices had
been timely sent via the use of three “created” Payment Change Letters, when in fact
they had not, and during such time attempting to resolve a dispute pending before this
Court.
(4) Countrywide intentionally, or with reckless disregard and/or indifference to the
applicable facts, making misrepresentations to this Court in a pleading regarding the
cause of its claimed escrow arrearages account regarding the Debtor.
(5) Goldbeck McCafferty and McKeever and Leslie Puida knowingly and willfully,
or with reckless disregard and/or indifference to the applicable facts, violating the
discharge injunction granted to the debtor by making numerous and [*44] sustained
attempts to collect on debt they knew to be discharged or should have known was
discharged.
(6) Goldbeck McCafferty and McKeever and Leslie Puida intentionally, or with
reckless disregard and/or indifference to the applicable facts, failed to disclose to the
debtor’s attorney that three Payment Change Letters had never actually been sent, all
in an improper attempt to collect on questionable debt while attempting to resolve a
matter that was pending before this Court.
(7) Goldbeck McCafferty and McKeever and Leslie Puida intentionally, or with
reckless disregard and/or indifference to the applicable facts, made inaccurate oral
statements in response to the Court’s inquiry regarding when Leslie Puida told the
Debtor’s attorney that the three Payment Change Letters were not what they purported
to be, but instead were memoranda created years after the event.
AND NOW, this 5th day of October, 2010, for the reasons set forth in the accompanying
Memorandum Opinion, it is ORDERED, ADJUDGED and DECREED that,
(1) Items 1, 2 and 3 of the Rule to Show Cause (“Rule”), Document No. 435, as directed against
Countrywide Home Loans, Inc (“Countrywide”), and Item 5 of the Rule, as directed against
Goldbeck, McCafferty and McKeever (“GMM”) and Attorney Leslie Puida (“Puida”) are
VACATED.
(2) With respect to Item 4 of the Rule, as directed against Countrywide, the Court finds
sufficient cause exists to sanction Countrywide pursuant to Fed.R.Bankr.P. 9011, and that a
sufficient sanction so as to deter repetition of such conduct in the future or comparable conduct by
others similarly situated, is a “public censure” of Countrywide and a reminder of its obligations
under Fed.R.Bankr.P. 9011(b)(3) to make reasonable investigation before making factual
allegations in documents filed with the Bankruptcy Court, or any other court for that matter. The
Court’s comments in the Memorandum Opinion and in this Order constitute that censure and
[*126] reminder. Therefore, no further hearing or action is required in regard to Paragraph (4) of the
Rule.
(3) With respect to Items 6 and 7 of the Rule as directed against GMM and Puida, the Court
finds that sufficient cause exists to impose sanctions pursuant to the Court’s inherent power its
power pursuant to 11 U.S.C. §105(a) and Fed.R.Bankr.P. 7037, incorporating Fed.R.Civ.P.
37(c)(1)(C). Therefore, a hearing is scheduled for November 22, 2010 at 2:00 P.M., in the Erie
Bankruptcy Courtroom, U.S. Courthouse, 17 South Park Row, Erie, PA, for the purpose of
considering and determining appropriate sanctions, at which time Leslie M. Puida and Michael T.
McKeever, in his capacity as a representative of GMM, with authority to speak for the firm, are
directed to personally appear.
(4) With respect to the apparent misconduct of Attorney Charles Townsend (“Townsend”) as
described in the Memorandum Opinion, a Rule to Show Cause is hereby issued directing him to
personally appear on the November 22, 2010 at 2:00 P.M., in the Erie Bankruptcy Courtroom, U.S.
Courthouse, 17 South Park Row, Erie, PA, to show cause why sanctions should not be imposed
against him for providing false or misleading testimony [*127] under oath during his deposition in
this matter, which testimony was then used at the time of trial due to Townsend’s unavailability. The
Court further understands that Townsend may no longer be affiliated with Countrywide. If that is
correct, Countrywide and its Counsel of Record, Thomas P Connop, are directed to effect personal
service of a copy of this Order and Rule to Show Cause, together with the Memorandum Opinion,
on Townsend immediately after receipt of this Order and file a Certificate of Service to that effect
on or before October 12, 2010.
/s/ Thomas P. Agresti
Thomas P. Agresti, Chief Judge
United States Bankruptcy Court
In re: JAMES L. BURKS, JR.
JAMES L. BURKS, JR., Plaintiff,
v.
COUNTRYWIDE HOME LOANS SERVICING, LP, AND UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendants.
Case No. 09-10170-DWH, Adv. Proc. No. 09-1064-DWH.
United States Bankruptcy Court, N.D. Mississippi.
April 12, 2010.
OPINION
DAVID W. HOUSTON III, Bankruptcy Judge
On consideration before the court is a motion for partial summary judgment filed by the defendant, Countrywide Home Loans Servicing, LP, (“Countrywide”), now known as BAC Home Loans Servicing, LP, (“BAC”); a response to said motion having been filed by the plaintiff, James L. Burks, Jr., (“debtor”); and the court, having heard and considered same, hereby finds as follows, to-wit:
I.
The court has jurisdiction of the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core adversary proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), and (O).
II.
The debtor filed a voluntary petition for relief pursuant to Chapter 13 of the Bankruptcy Code on January 15, 2009. He filed the subject complaint on April 16, 2009, against Countrywide, now known as BAC, and the United States Department of Housing and Urban Development, (“HUD”).
The debtor executed a primary promissary note and a deed of trust to purchase his residence on August 31, 2002. The original beneficiary in the deed of trust was Mortgage Electronic Registration Systems, Inc. The underlying loan is currently being serviced by BAC, as the successor to Countrywide, and the amount of the indebtedness set forth in BAC’s proof of claim is $109,112.21.
The primary note and deed of trust were insured by HUD. When the debtor fell behind in his payments on the primary note, HUD paid $8,878.77 to Countrywide on debtor’s behalf under HUD’s Partial Claim Program. To provide security for this disbursement, on June 13, 2006, the debtor executed a subordinate note and deed of trust in favor of HUD encumbering his residence.
The debtor alleged in Count 1 of his complaint that none of the documents pertaining to either of the above described loans were signed by his wife, Shawna Yvette Dawson-Burks. Consequently, he contended, pursuant to Miss. Code Ann. §89-1-29, that neither of the deeds of trust were valid as liens against his and his wife’s homestead due to the lack of his spouse’s signature.
Motions for partial summary judgment as to Count 1 of the complaint were filed by the debtor, BAC, and HUD. The court concluded that there were no genuine issues of material fact remaining in dispute as to the debtor’s Count 1 claim against BAC and granted BAC’s motion for partial summary judgment. HUD’s joinder in BAC’s motion for partial summary judgment was denied. The debtor’s motion for partial summary judgment as to the invalidity of HUD’s unsecured non-purchase money deed of trust was sustained. (See the court’s opinion and order, both dated December 21, 2009.)
BAC has now filed this second motion for partial summary judgment asserting that it is entitled to a judgment as a matter of law as to the remaining counts of the debtor’s complaint. The debtor has alleged that BAC and its predecessor, Countrywide, charged improper and unauthorized fees in violation of § 506 of the Bankruptcy Code and Rule 2016, Federal Rules of Bankruptcy Procedure. The debtor objected to BAC’s proof of claim and additionally asserted that BAC and/or Countrywide committed violations of the automatic stay.
III.
Summary judgment is properly granted when pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Bankruptcy Rule 7056; Uniform Local Bankruptcy Rule 18. The court must examine each issue in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Phillips v. OKC Corp., 812 F.2d 265 (5th Cir. 1987); Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D. Miss. 1987). The moving party must demonstrate to the court the basis on which it believes that summary judgment is justified. The nonmoving party must then show that a genuine issue of material fact arises as to that issue. Celotex Corporation v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.29 265 (1986); Leonard v. Dixie Well Service & Supply, Inc., 828 F.2d 291 (5th Cir. 1987), Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D. Miss. 1987). An issue is genuine if “there is sufficient evidence favoring the nonmoving party for a fact finder to find for that party.” Phillips, 812 F.2d at 273. A fact is material if it would “affect the outcome of the lawsuit under the governing substantive law.” Phillips, 812 F.2d at 272.
The court notes that it has the discretion to deny motions for summary judgment and allow parties to proceed to trial so that the record might be more fully developed for the trier of fact. Kunin v. Feofanov, 69 F.3d 59, 61 (5th Cir. 1995); Black v. J.I. Case Co., 22 F.3d 568, 572 (5th Cir. 1994); Veillon v. Exploration Services, Inc., 876 F.2d 1197, 1200 (5th Cir. 1989).
IV.
This court is of the opinion that this adversary proceeding has numerous material factual issues remaining in dispute. The debtor’s payment history and the methodology employed by BAC/Countrywide in the application of the debtor’s payments must be developed through an evidentiary hearing. The parties opposing views regarding the significance of the financial records have been made evident in telephonic conferences conducted by the court.
In summary, because of the aforesaid factual disputes, the court determines that BAC’s motion for partial summary judgment is not well taken.
A separate order will be entered consistent with this opinion.
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